ILECs Seek E-Fund Rule Change to Stop Network Overbuilding

July 11, 2019 | by Andrew Regitsky

ILECs Seek E-Fund Rule Change to Stop Network Overbuilding

The Schools and Libraries Fund of the Federal Universal Service Program known as the E-Rate program provides discounts to schools and libraries to ensure affordable access to high-speed broadband and telecommunications necessary for digital learning. It has an annual budget of $4.06 billion and is usually free from controversy. All that changed on May 22, 2019 when a group of rural Texas ILECs filed a Petition for Rulemaking (Petition) in Docket 13-184 requesting the FCC to change the E-Rate rules to prohibit overbuilding of fiber networks.

The Petition was filed by Central Texas Telephone Cooperative, Inc., Peoples Telephone Cooperative, Inc., and Totelcom Communications, LLC, which collectively call themselves the “Texas Carriers.” They urge the Commission to initiate a proceeding to amend Part 54 of the Commission Rules to ensure that the competitive bidding requirements of the program do not allow schools and libraries to have multiple fiber networks build with E-Rate support dollars.

[T]he Texas Carriers are concerned about the use of E-rate funds to overbuild or build duplicate networks to existing fiber networks that were previously constructed using USF funds. For example, a single rural school or library could end up with two fiber connections supported by USF, one facility previously constructed with the support of funding from the High Cost or other USF programs, and a new redundant facility constructed with funding from the E-Rate program. Such overbuilding is not only wasteful and an inefficient use of governmental program funds, but it also reduces the pool of funds available to rural schools and libraries that actually need fiber broadband connection. (Texas Carriers Petition for Rulemaking, Docket 13-184, filed May 22, 2019, at p. 3).

Industry comments regarding the Petition were filed on July 1, 2019. As expected, the Texas Carriers received support from other rural carriers. The ILEC association USTelecom expressed support but believes the Petition did not go far enough.

USTelecom supports the Petition’s overall position that “overbuilding is not only wasteful and an inefficient use of governmental program funds, but it also reduces the pool of funds available to rural schools and libraries that actually need fiber broadband connection,” but the Petition does not go far enough in its requested relief. By targeting only “safeguards which would discourage overbuilding of existing federally supported fiber networks,” the Petition ignores the plight of competitive providers who are consistently overbuilt with E-rate funding. Such overbuilding changes cost structures for those investing in the networks and deprives efficient funding to other unserved areas most in need. (USTelecom Comments, filed on July 1, 2019, at pp. 4-5.).

Please note that as the ILECs association, when USTelecom uses the term “competitive providers” it is referring to its incumbent members and not their CLEC competitors!

At first glance, the arguments supporting changes to the E-Fund to limit overbuilding would seem to make sense since it would ensure the limited funds available are not used to provide duplicative networks. However, the CLEC association INCOMPAS has other ideas. It opposes the Petition because it claims it would advantage incumbent carriers.

The association begins its opposition by arguing that the Petition should be rejected on procedural grounds because it lacks the factual detail needed to conduct an actual rulemaking.

INCOMPAS next asserts the Petition is unnecessary because the E-Rate program is best served by continuing to give actual competitive providers access to the bidding process and reaffirming the safeguards that the Commission put into place that allow smaller providers to respond to applicant bids.

The meat of the INCOMPAS concern involves the specific protections the Texas Carriers want built into the E-Rate rules to prevent overbuilding. The proposed rules would require E-Rate applicants to post their special construction fiber projects on a website managed by USAC and allow a 60-day public challenge process during which time incumbent providers could confirm its existing fiber connections in the impacted area. In instances where fiber already exists, the applicants’ provider of choice would have 120 days to negotiate a fiber lease agreement with the incumbent based on a reasonable, market-based price.

As INCOMPAS correctly points out, these requirements would clearly favor incumbents.

First, the petitioners’ proposal will entrench incumbent providers at the expense of an efficient and competitive E-rate program that is driving better services to schools and libraries. Further, its 60-day public challenge process represents the very definition of an uneven playing field. If incumbents do not have to bid because they can wait for a contract and then require the winning vendor to use its facilities, the E-rate competitive bidding process will suffer from a loss of a potential bidder. The challenge process would allow incumbent carriers to obtain a profit from E-rate-provided services without the expense and effort of participating in an E-rate competitive bidding process. Even worse, the ultimate result is likely to be that E-rate applicants take the safest course of action and select incumbent providers who actually choose to bid, to avoid the prospect of the challenge process. (INCOMPAS Opposition, filed July 1, 2019, at p. 11).

Reply comments from the industry are due on July 16. The tasks the FCC will ultimately face in this proceeding are twofold. First it must determine if overbuilding is an actual serious problem as the Texas Carriers have suggested but not sufficiently documented. Second, if the problem exists, the Commission must change the rules to stop overbuilding without advantaging incumbents while ensuring schools and libraries utilize the most cost-effective networks.

Unfortunately, the Texas Carriers proposed rules could add to any overbuilding problems and would hurt the E-Rate program. The Petition should be rejected.